Sunday, May 30, 2010

Hi, traders. Here's a look at the indices for the upcoming week along with a few charts to watch. I see downtrend lines forming and am interested to see how the market reacts if and when those levels are challenged. If they are, I will look closely at getting short. Otherwise, cash remains a great option right now amidst this crazy volatility.

To see the video in HD, please click "720p" and "Full Screen" on the video bar - HD will be available after processing.

I also want to thank all of the brave veterans out there who have sacrificed for our country and especially remember those who paid the ultimate sacrifice. I watched a local story on the news last night that made me think again about all of the risks that our soldiers take to defend our freedoms as Americans. Let's all remember these men and women this weekend and honor their bravery and selflessness. God bless to you all.

Friday, May 28, 2010

Another fun day on Wall Street today as stocks gave back a good chunk of the gains they put in yesterday - what else is new? Volume was light and perhaps traders didn't want to hold positions ahead of the long weekend, but whatever the reason, it remains a very difficult market to do anything with for more than a few hours. If you want more detailed summaries right now, read the posts I've written for the past two weeks. Cash remains your best friend right now and all we can hope for is that things get a little less choppy after the holiday passes. We'll see - enjoy the long weekend and spend some time away from this market. Take care.

Thursday, May 27, 2010

Soooo...are you having fun yet? If you are a daytrader, I am sure you are loving this market, but the mantra remains the same if you are a trader that prefers to hold positions for more than a few hours - we are in a virtually impossible market right now. Yesterday we saw a nasty reversal off of what looked like follow-through to a very bullish reversal from Tuesday. Today, we gapped up over 2% on news of China committing to more purchasing of debt from other countries. Oh, yeah, volume looks pathetic. Seriously, if you are holding positions overnight right now AND making money in this market, please email me because I would love to know how you're doing and would love to share your strategies with my readers.

The market did break above some short-term resistance today and as I've said several times this week could be putting in a short-term bottom here. However, the S&P isn't even above its 200 day moving average and there is lots of overhead resistance to deal with from here on so even if a bottom is in, it will likely be very difficult to play. I personally just don't trust anything right now enough to hold any stock overnight and as such I remain in cash and will likely continue to make that my "position". I really don't know what else there is to do admist this amazing volatility we are seeing. As the summer trading season starts soon, let's all hope that the liquidity will decrease even more, which would make volatility even more stunning.

Tomorrow should be interesting because we have a long three-day weekend. Will the traders who bought today really want to hold over that period of time knowing how much news could come out? Will that push stocks right back down tomorrow another 1-2%? These are great questions that I unfortunately don't know the answer to right now. Tomorrow should be an interesting session.

Right now, really the only thing most swing traders should be doing is keeping a tab on stocks that have held up well on a relative basis for the past month or so (and I have showed several of those this week) and go from there. If we have a massive bounce up near the 50 day, I will start looking for shorts, but as of now, that doesn't appear to be prudent either. Patience is a virtue and it's times like these when you need it trading. Take care.

Wednesday, May 26, 2010

A day after another bullish reversal, the market crapped out again today. It was up nicely in the morning and showed good follow-through from yesterday's possible short-term bottom, but that bullish action didn't last long. Around 11:00, the markets started to drift lower. They moved sideways through the lunch hour, but around 2:00 the selling picked up again and the market sold off pretty hard for the final two hours of the session, giving the market decent losses on a day when it was up nicely early on. Not bullish action at all. Volume was also much lower today than yesterday.

Technically a few of the indices (namely the Nasdaq and Russell 2000) hit their 9 day moving averages today and reversed, and that is a sign of how strong this current downtrend is that we are in right now. Every little bounce is sold and the bulls can't seem to put a few hours together of solid gains let alone a few days. It is still possible a very choppy, volatile bottom is being put in here, but right now most of the action seems to point to futher downside at some point in the near future.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

I didn't make any moves today and remain in cash, where I am perfectly happy to be. This is not a market to swing trade in - it just isn't. I don't know how anyone could feel confident holding a short or long position overnight with the volatility and gaps we are seeing, One would hope that the volatility settles down a bit as time passes, but with summer fast approaching (which means less and less volume) it is possible that the volatility actually increases as we move forward. That's great for day-traders but not so good for someone in my position.

It is what it is, however, and there is not much I can do about it. Part of being a trader is knowing when the deck is stacked against you and no opportunities exist. We are still in one of those times and although it is boring, it pays to be patient and not force action that isn't there. I'm sounding like a broken record, I know, but it is true. Take care and be careful out there.

Tuesday, May 25, 2010

Just in case we found a reversal that can stick, here are what I see as the best looking stocks right now. You always want to be prepared and keep your watchlists ready and these stocks have held up relatively well compared to others during this selloff. That being said, we could open down another 200 points tomorrow and I wouldn't be surprised - that's how unpredictable things are, so be careful.

Another crazy day on Wall Street today, as stocks finished well off their lows for the second time in three sessions. The day didn't start off well at all with a large gap down at the opening bell. There was further selling during the first ten to fifteen minutes of trading, but around 10:00, stocks did manage to rally and continued higher throughout the rest of the session, finishing with small losses but well off their lows for the session. Volume looks to be heavier than yesterday's light totals.

I said this morning on Twitter that I expected a major selloff (perhaps historical in nature) this week due to the huge gap down this morning. As of now, I certainly appear to be very wrong. I think my rational was OK - a market that can't rally in the face of historically poor breadth numbers last Thursday and then breaks to new lows following an attempted bounce Friday is a market that looks (to me at least) like it could really blow open. That didn't happen today however. I don't know that this will be the day that we do finally bounce back up (what makes it different than last Friday?) but I guess it is possible. We've had two reversal bars near important support levels the past three days so as we are still in a position to do so. I am certainly not discounting the possibility and will keep an eye on the stocks holding up well from this weekend's video. There are several that I will consider going long with if today's action leads to something positive.

Overall, today was positive, but all I can really take from the action is that this remains a very difficult market to trade for more than a few hours intraday and that's why I continue to stay away from it. Perhaps a bottom is being put in in this area - it's too early to tell, but it is possible and worth watching. If we do bounce, 1100 becomes a key number to watch on the S&P. On the other hand, if we don't bounce (after getting two reversal days) and soon reverse this reversal like we did yesterday, then maybe we do see that washout-type action. I really don't know - the volatility continues and it makes predicting what will happen next even more difficult. I'm leaning long for a trade but not married to that thought. Good luck if you're trading.

Monday, May 24, 2010

A very unimpressive day today on Wall Street, as a potential bounce opportunity from Friday was wasted by the bulls and stocks fell with modest losses. The market opened lower but did move up early on, which was a positive sign. However, every intraday bounce was sold off and stocks couldn't make much progress higher than where they closed things Friday. They sold off for most of the afternoon and finished at their lows for the day with an awful close. Volume was much lower.

I said in the video last night that the bulls certainly had a good opportunity to produce if nothing else a relief rally early this week as breadth and sentiment was historically stretched to the downside last Thursday. The fact that they could not do so today is obviously very discouraging. If we break through Friday's lows soon (as in this week) then I do think all heck will break loose and we could still be looking at an historically significant event. When a market can't bounce in the face of such extremely negative numbers, it tells you something.

If you are trying to be an optimist here, you can look back to February 5 of this year for some potential encouragement. The market had been selling off hard at that point and put a one day reversal in after having a major sell-off the day before (down over 3%). Coincidentally, that reversal was also on a Friday. The following Monday, the market went nowhere and I, like many others, were expecting the worst because of a lack of follow-through. However, after moving sideways for the rest of the week, the markets finally did breakout a bit to the upside the following Monday and went on another major rally. Could it happen again? I have learned this year not to put anything past this market. I can't say I am expecting it but it is something I will watch for as a potential scenario.

Good luck if you're trading - I am still in cash and am in no rush to do anything. Gold did bounce a bit today and I will still keep a close eye on it, but that's really it. Take care and be careful - it's still a really difficult market.

Sunday, May 23, 2010

Hi, traders, it's been a while since I put together a video so I figured I'd take a shot for this weekend. I mentioned Thursday that things were getting so stretched in terms of breadth and indicators that a bounce would certainly not come as a surprise. Was Friday the start of that bounce is the question? I don't know the answer for sure, but I do know that if it was not, and if we reverse hard the next day or so and take out Friday's low, we are in for major, major trouble. It remains a difficult market and unless you're a day trader, staying in cash or at least trading very lightly is probably still the best play.

Part one of the video takes a look at the indices, some sectors, and some of the stretched indicators out there. Part two looks at potential leaders for a potential rally (hard to believe it could happen right now but you never know and you always want to be prepared). One thing I will say is that I don't think you typically see a long-term top form this violently - I believe it is usually more of a process where the institutions distribute slowly. Perhaps the computers are changing that as well. The volatility we are seeing is reminding me more of October and November of 2008 rather than November of 2007.

To see the video in HD, please click "720p" and "Full Screen" on the video bar - HD will be available after processing.

Thursday, May 20, 2010

Interesting day on Wall Street as stocks just keep falling and falling with no support in sight now that the 200 day moving averages were sliced through. The market started the day with a large gap down and although it wasn't a massive slide from there (mainly they chopped sideways in a large range), they did finish near their lows for the session in what can only be described as nasty action. The Nasdaq and S&P 500 have not yet broken their Thursday crash intraday lows, but perhaps that is just a matter of time.

As I look at some indicators and numbers I keep track of, I am seeing levels from which the market should really bounce soon. We are hitting extremes on quite a few levels here - for instance, the McClellan Oscillator hit -467 near the close today - it may end up lower than that. I've never seen it lower. The VIX has almost doubled in little more than a week (looking very September 2008 there by the way). There are other numbers I follow dealing with breadth that have really tumbled so sharply that again, you expect a bounce back soon because they are getting extreme as well. The question is will that bounce come, or are we looking at the real potential for a real crash here soon, something perhaps worse than we saw that Thursday two weeks ago?

I don't know the answer to that question - maybe I kind of fear the answer in actuality. With the weekend ahead (would you want to hold stocks over a weekend right now?), I do think it is probably 50-50 that we really tank hard soon and get a complete washout - a real capitulation. I don't know what comes next if that occurs. Perhaps cooler heads will prevail and dip buyers will come into the market when things look their worst as has happened in the past, but all we have to do is look at the Thursday crash to see what can happen if computers are shut off and no one else is around. Do you really have enough confidence in the "system" right now to go out and buy tomorrow or perhaps Monday if the market is down another 500 points or so and tanking intraday?

That's a really tough question for me to answer - I think my answer would be no but I have to think about it more. Let me emphasize this - a lot of data points to this being a situation where fear and breadth are so stretched that we could turn on a dime very soon and put in a very nice bounce. Timing it would be hard but it would likely happen intraday. Will history repeat itself is the question, or are we really in a new market run by new forces and therefore the textbooks should be thrown out the window? Perhaps the fact that it (a potential crash) is staring us right in the face will allow history to repeat itself and we turn soon - maybe part of the Thursday crash was the swiftness and surprise of it - no one saw that coming. Maybe again I am just reaching for straws though. It's a tough call - trying to play a panic bottom always is.

I am just fine being in cash right now - completely fine. I will watch the action closely over the next few days if for no other reason than who knows, I might see history again. Remember that options expiration is tomorrow as well so that should make things even more interesting. Fun times we live in. Take care and be very careful.

Wednesday, May 19, 2010

I just got done going through my scans for the first time in probably two weeks. Yes, perhaps that is bad of me - not staying in touch with the market and not doing the work I normally do each night. Sometimes however you need a break. Anyway, do you know what I found? Nothing...absolutely nothing (unless you're looking for a bunch of ugly charts with all sorts of reversals and unidentifiable patterns that can best be defined as intense chop - then I got a ton for you to check out.) All of the things I have been saying for the past week or so about staying in cash and not doing anything seems to be correct based on what I just saw in my scans. Even if I did go through and plan trades and watch the market closely the past week or so, I can say with a good deal of certainty that I would have lost money if I played in this market. The sad thing is that it is likely going to take a good amount of time for charts to look even half-decent in terms of potential setups. The waiting game continues I guess....be careful out there.

More chop today on Wall Street, as stocks vacillated back and forth all day beginning with the pre-market futures. It looked like it was going to be another bad day based on the way futures did look this morning, but they rose throughout the morning and stocks opened only slightly to the downside. After a brief move higher, however, they fell straight through the rest of the morning hours before finding a bottom at lunchtime. From there, they bounced into the close through the afternoon, and although they still finished with losses, they finished off their lows.

One interesting trend that is developing is the lunchtime reversal. Almost to the minute for the past week or so it seems like the market is changing course at noon. I don't know if it has to do with program trading or what, but if you day-trading, it bears watching. As a swing trader, it doesn't affect me too much I guess.

My basic thesis right now is that the market will continue to chop around between its 50 day and 200 day moving averages for the next few weeks until finally a break is made. I would not be surprised to see some sort of pennant formation develop on the indices. So if you look at that outlook, you might look at buying here as the market did bounce off of its 200 day today. The problem with that is that I don't have much confidence in the bulls right now and I think that the market is headed lower over the longer term. We may bounce a bit, but I don't think it's a given. I do tend to think that another failure near the 50 day moving average is very likely, and so if we get that high anytime soon, I believe I will look to short it. Overall I continue to believe that downside risk is much, much higher than upside potential and as such I think shorting is the only play if you have to trade (but wait for the bounce before doing so).

The only other area I have mentioned to focus on for the past week had a bad day today - gold broke some short-term support and is now sitting below its 20 day moving average. I didn't make any moves in gold today and it is getting close to an uptrend line from March, but today's action was not positive and we'll have to see where it goes from here. Further selling might lead to a nice quick market bounce. Of course, with the way computers trade, this breakdown might be a perfect time to buy in a Constanza sort of way. (Seinfeld references there).

Hope you are having fun - I continue to believe that this market is a difficult one to do much with unless you're day-trading so I still sit patiently and just watch from afar. Good luck Wednesday if you're trading.

Tuesday, May 18, 2010

After showing some strength yesterday by pulling the market all the way back up from morning lows, the bulls didn't show up today, as stocks fell right from the opening bell and ended the day with decent sized losses. The decline was steady throughout the day and the action was not bullish in the least. Before today, I thought that the market might bounce a little further, but that obviously didn't happen. What is happening is that the markets continues to chop around violently in a wide range and things continue to be difficult in terms of my style of trade.

I am looking at gold here but really that is about it - I don't see a need (or a good reason) to do much else at this point. A break of yesterday's lows will probably bring in more selling, so if you're day-trading, you can still play this market short. However, longer-term, I still think this market has at least one more test of the 50 day moving average in the future and it's at that point that I may look at putting a few shorts on. Right now, however, there is just isn't much attractive out there for me.

Good luck Wednesday - if you're not trading like me you may be a bit bored, but knowing when to sit out is part of trading - a very important part. Congrats as well to Don for winning the free pass to the Stock Bandit's Advanced Trading Course. Here is a bit of his email...

"One example was a day trading system that was initially very successful. It was a live feed where buy and sell signals were e-mailed out during the trading day. I followed this system for over three months and found it was successful over 60% of the time. Then he offered his first seminar and I jumped at the opportunity. At the time during the seminar, he openly commented that he was concerned that some of the individuals in his course were brokers. During the seminar everyone made money on his recommended buy and sell signals. I made enough money to pay for my trip and stay. I witnessed one individual next to me who invested large sums of money and made over $30,000 on one single trade.

We all went home very happy with the technique. Within the next month or two the technique continue to be successful but slowly one could tell something was changing. Fewer and fewer trades were working. Eventually, his technique was completely worthless. He even commented that there appeared to be forces that were at work that were robbing his system.

I am therefore very skeptical of the any system that claims to be successful. I am somewhat convince that there are computer systems out there capable of squelching techniques that have any repeat success."

Monday, May 17, 2010

A volatile start to what should be a volatile week (options expiration on Friday) on Wall Street today, as stocks started the day flat, quickly fell past Friday's lows, but then rose from lunchtime on and finished with small gains. This remains a market that can be traded intraday but a market that is very difficult to swing trade as it is quite unpredictable. It is hard for me to say with any certainty what the rest of this week will look like, as I think we'll see some swings like we saw today as expiration Friday approaches. My gut tells me that barring any news, we won't see a waterfall-type event soon with the market crashing again, but I also can't see the market getting much above its 50 day moving average over the next few weeks. What does that mean? Well, my guess would be continued volatility and continued chop.

As boring as it is, I remain firmly in cash right now and I'm pretty sure I won't make any trades this entire week. The current state of the market and the volatility present is one reason I am on the sideline right now (remember I do have a full-time job and am unable to watch the intraday action) but another reason is that my heart just isn't in it right now. I'm being honest here - sometimes I need to just step away and "recharge" so to speak and I think I am in that mindset right now. I think most traders feel that way from time to time. Over the next few weeks, I will be able to have some time off from my regular job, so perhaps I'll get back into the market then when I can watch things more closely, but for now, for me, it is best to just sit out.

Although I have been on the sidelines, I have stated several times over the past week or so that the only real plays out there if you have to trade is being short the indices and perhaps gold. I still think that outlook holds true. I would look to short any move back up toward the 50 day moving average and go from there - not here however. The market may fall further but shorting at this point is quite risky. Gold seems to be consolidating rather nicely - keep an eye on GLD to see if it can hold $119. If it does, I would guess it has further to go to the upside.

That's about it for today. To wrap things up, here's an interesting read that was on Yahoo Finance about HFT this morning that I believe is very much worth checking out. As I wrote in my big rant last weekend, I honestly don't think you'll hear a lot about this issue on most websites and networks because nobody wants to talk about it. I'm not going to go into another rant here, but if the truth starts to come out and more and more people realize what is happening in our equity markets, even more faith will be lossed in the system, hurting all sorts of participants across the board. People aren't usually going to sabotage themselves just to get the truth out there, and I think that's what we're seeing here in some way. Take care and good luck out there if you're still trading this mess.

Last thing....one final call for emails to be entered in the Stock Bandit's free pass for his advanced trading course. I will announce a winner later tonight.

Friday, May 14, 2010

Just wanted to give all of my readers a heads up for a new trading course put together by Jeff White, otherwise known as the Stock Bandit. After putting together a solid beginner course last year that helped traders get familiar with the in's and out's of the business of trading, he has come back with an advanced course for 2010......

"The market is ever-changing, and that requires serious adaptation on the part of traders. Regardless of timeframe or style, what worked last month might fail miserably this month, which places a tremendous premium on having a wide set of trading skills to utilize at any given time - whenever the conditions call for an adjustment.

TheStockBandit University's Advanced Trading Course was designed to provide exactly that. Covering a multitude of strategies, as well as the conditions under which they are best employed, this course will make any trader a more complete trader. This course will leave you more prepared, less confused, and fully-equipped to focus on the things which matter most.

Our Advanced Trading Course is an up-close examination of a variety of styles to be used across multiple timeframes, from Day Trading to Swing Trading to Position Trading. We go in-depth on topics like money management, locating trade candidates, executing orders with precision, how to add to winning trades effectively, managing risk through options, trading on news, scalping, basket trading, structuring entities for your trading business, tactics for a host of strategies, and a whole lot more. In short, it's intense trader training.

With more than 6 1/2 hours of video lessons in this course, we literally left nothing out of the curriculum. You'll find it covered here, whatever it is, if it's important to trading successfully. And of course, it comes backed by not only our rock-solid reputation, but by the same risk-free guarantee our courses are known for.

TheStockBandit University is here to equipyou to tackle any trading condition you might face. Are you ready to begin?"

To kick off the release of the advanced course, Jeff has been kind enough to give away a FREE pass to his advanced course, an $897 value - completely free!!! I will give this FREE pass away this weekend - email me your thoughts on what happened last Thursday and if it will change your trading strategies or outlook in the future. The most interesting email I receive will be given the free pass and be posted on the blog.

Jeff offers a money-back guarantee for his trading products so make sure you check it out (click on the link above)...

"And you can do it risk-free! TheStockBandit University is so thorough, so complete, and so informative that it's being offered to you with a 100% no-questions-asked money-back guarantee. If you enroll in the course for the first time and find that it's not what you were looking for, you can ask for and receive a full refund within the first 7 days. I'm that confident you're going to love it."

Thursday, May 13, 2010

This is all I have for today as I have some family commitments to attend to - the overall market looks very bearish on the daily charts of pretty much every index or ETF, but what would make me hesitate is that EVERYONE sees this. Everyone I read right now is talking about the exact same thing - how the markets have spiked back up on consecutively lower volume sessions right into the heart of what should be resistance. Naturally, this has most people expecting a breakdown soon.

I do think the market is headed lower, but it just seems so obvious for it to happen right now with this setup. Maybe it will - maybe that's how the market is going to trick the majority this time. Maybe too many people like me think a breakdown is too obvious and therefore won't play it and then it will happen.

I remain totally in cash and pretty much disengaged from things overall. If I were to get short, I think I would rather have a false break above 1180 and 2450 on the S&P and Nasdaq respectively from which to get short. It would send early shorts running and just put enough doubt into traders and computers about whether the market will really pull back or instead go on another liquidity-driven low volume rally. I think overall that "breakout fakeout" would be a safer setup. We'll see if we get it.

It remains difficult to swing trade right now so I'll probably continue to stay out of things. No need to do much when there aren't a lot of great opportunities in front of you. I'll continue to keep an eye on gold for a pullback (which perhaps started today) and for the right time to perhaps get short, but that's it. Good luck out there if you're trading.

Wednesday, May 12, 2010

Another up day on Wall Street today - I'm not sure why but I really wasn't following the action either. It was one of those slow, steady climbs where the market rarely spiked up but also rarely pulled back significantly. The indices are right near their 50 day moving averages, which could provide some resistance, but I still feel we're in a confusing situation due to the Thursday crash and that things are still tricky to read.

If you're looking for important levels, on the surface two numbers I would watch are 1180 on the S&P and 2450 on the Nasdaq. Those are the necklines of the head and shoulder patterns that were cut through to the downside last week. A retest following a breakdown is historically normal so I would keep my eyes on how the market acts around those numbers. A move to those levels or slightly above would probably frustrate a few early shorts that got short at the 50 day moving averages and would also likely put the market in a short-term overbought condition. I still think the chances of the market heading lower from here over the next few months is much higher than the chances of new highs being established, and so shorting is the only move I possibly would make here - not interested in any longs at the current time.

Gold continued to move higher today but I would not be surprised of a pullback there soon. Names like AUY and GG reversed today off their highs and I just think some consolidation makes sense. It might be getting ahead of itself a bit. I will likely consider gold if it does pullback because the yellow metal and shorting the indices are the only plays I see that are worth making in this environment.

That's it for me - I remain in cash and didn't watch the market at all today - no need to yet in my opinion. We could very well be approaching an interesting juncture when those necklines are tested so watch that carefully. Otherwise, staying in cash remains a solid play. Good luck, and go Pens tonight in game 7!

Tuesday, May 11, 2010

More chop today on Wall Street - the market opened the day much lower, moved straight up from there to post nice gains, and then gave those gains away from 2:00 on to end up finishing flat. All in all, a day I certainly did not miss as I sit here in cash and still quite disengaged from the market. I haven't gone through any scans in about five days but I am guessing charts still look very messy and almost untradeable. Cash remains the best option for me and I think it remains the best option for most traders whether they want to admit it or not. Things are still very much up in the air with this market and news continues to drive trading.

In the blogs I read, I hear most people expecting the market to fall quickly as it approaches its moving averages (which it is doing now) and then continue lower. I overall agree with them, but I would guess the process will be much trickier. If you want to get short, then just by the looks of the charts, now might be a perfect time to do so. In terms of potentially putting longer-term index shorts on, I would probably wait but that's me - I am not real confident in anything market-related right now. I would rather wait for a few bounces that test the 50 day moving average (which I would guess will come) before putting those longer-term positions on.

Gold broke to new highs today (luckily I was stopped out on April 16 after a one-day spike down took me out). This is the only other area I would consider right now besides shorting the indices. I expect some continued whipsaws here as well and would wait for some consolidation, but the catalysts are certainly in place now (and were in place well before this actually) for gold to continue to move to new highs. Watch it.

Good luck tomorrow if you're trading - for us swing traders that would like to hold positions for several days to several weeks, it remains a market that is best to abstain from being a part of. I mean really, can any of you confidently predict where we will be a week from now with as much volatility as we are having? It remains really tough and discombobulated. Take care.

Monday, May 10, 2010

The volatility continued today on Wall Street - boy did it ever. Market-wise, we obviously saw a strong session on the surface today with news of the new trillion dollar bailout of Europe via the EU and IMF and I am sure some other countries, likely including the U.S. The key word in the last sentence was "news" as this continues to be a completely news-driven market. I'm sure you'll hear a ton about what a great day it was, but in reality, the market moved completely sideways after the first five to ten minutes (actually it was more of a slow fade) and unless you got heavily invested on the long side on Friday afternoon, there wasn't much to do today in terms of making money. I remain in cash as I have for the last week and have no problems with remaining that way for the foreseeable future.

Longer-term, I still think we are more likely to have peaked for the year and will fall further after we bounce a bit, but at the same time, I am not dismissing another massive liquidity-driven rally similar to the one we saw from March of 2009. The EU has set the stage for it to happen - now will it work out the same way is the question? I honestly don't have a clue if it will - that's why I will wait. As I've been saying since Thursday, charts and technicals are too messed up for them to matter and it will take time for them to get back to normal. I am bearish overall - not a raging bear but I think there is a better chance of lower prices from here than there are of new highs.

Now, back to yesterday's thoughts. I was thinking about the state of the current market again and thought about poker. A lot of people compare trading to poker and I do think that's a very valid comparison. There are many professionals that play poker - they have earned that "title" because they have read, studied, and practiced to be the very best at what they do. If I sat down at a table with Doyle Brunson, Phil Ivey, Phil Hellmuth, and Daniel Negreanu, I would most likely lose my money. They are better than me, know more about poker than me, and because of that, they would be at a distinct advantage. At least, however, I would know the circumstances of play going into the match. I would know the rules and we would all have to play under those rules. I may lose money, but it would be my choice and completely my fault if I did so.

Now let's imagine you are playing online poker. You log into one of the popular poker websites and get into a game. There are three other human players logged on (along with yourself) but since you need eight to have a complete match, the other four spots are filled by "computer" players. You start playing and pretty soon you realize all the human players are losing money. Then you all lose more money, and more money. The computers keep raking it in. One by one the human players drop out and the match ends with you having a good chunk of your account taken from you.

Although you know poker is tough and that you can lose money at any time, something still didn't feel right about your experience and it is really sticking with you the next day. You are very much bothered by it. Then you happen to read an article on Yahoo that the poker website you logged into last night is being investigated for fraud. There are claims that their computer players purposely cheat. They have programmed the computers to "see" the cards of the human players as they play and then plan accordingly. Dealing is not random but skewed toward computer players. Any level of fairness inherent in poker has been completely taken away by these computers.

The article goes on to state that it is not just this website that is being investigated. Several other prominent poker websites are being investigated for the same claims - that their computers can see players cards and therefore take advantage of human players online. It is even being reported that some human players (employees of the website) have used the computers to play on their own against other humans using the same advantage of seeing the cards of the other humans and rigged deals. You look online and don't see much else about this article - perhaps it is not true. But it makes you wonder???

Now, this example is of course TOTAL FICTION - I don't want to start rumors that poker websites are fixed. I don't even play online poker so I have no idea how the sites even work. I am using it however as an analogy. Say this happened to you and you were made aware of this exact situation. Would you continue to play online poker? I am sure there would be many people that would continue to play, even in the face of these type of investigations. Some are addicted to it and they need to play, regardless of whether they can win or not. Others are confident enough (or perhaps naive enough) to think they can beat the computers anyway - bring it on, they say. But what would you do?

I think this example is analogous to the current situation in our markets. I have come to realization that I can't beat computers - I am not smart enough to do so and I don't have the resources to do so. Perhaps I can come up with a strategy that will work for a while, but most likely any strategy I have will only work for a small while or until the computers come up with a way of overcoming it and taking more of my money. I have felt this way for a while now, as I stated last night, but Thursday kind of magnified the situation for me. A lot. Having a full-time job, a wife, and two kids, I simply don't have the time or desire that seems to be necessary anymore to dedicate to "trading" in order to scrape 1-2% points from the market every month or so.

It's really up to you as a trader to decide what to do from here. I am going to sit back for a week or two or perhaps longer and just observe. To answer several emails and comments from last night, I am not "giving up" or "quitting". I am "disengaging" for the time being. I really don't think it makes sense to trade anyway right now because news is still driving everything - today was a prime example of that. Trading at this juncture is too much like gambling and I don't want to do that. Who knows, maybe I should just start playing poker instead. I'll still be here writing and sharing thoughts, but those thoughts might be a little different over the next week or so than what you're used - at least until some sort of changes can get implemented or things settle down and traders such as myself can have at least a little confidence in the integrity of the markets. Who knows how long that will take?

Here's a decent article about possible causes for Thursday's crash. - LINK That's it for today - until things change or settle, the posts might be a bit random - hope that's OK. Take care.

Sunday, May 9, 2010

Hi, traders, and happy Mother's Day to any moms out there that happen to read the blog. I hope you all have a wonderful, restful day - if you're anything like my wife, you deserve it.

Let's start with the market - we are certainly in an area where a bounce could happen. Am I getting ready to play one? No, not even close. Although we've fallen a great deal and lots of oversold indicators are hitting extremes (for instance, the T2108 is at its lowest levels since March '09 and the T2106 McClellan Oscillator is at the lowest level I've ever seen at -418), I just don't know that it's a guarantee we bounce. To be honest, I really still don't know what to think about anything. I don't trust anything. I know I am not the only one out there that feels the same way. Because of that, I think any move we see over the next few weeks (and perhaps longer - hopefully not) can't be trusted. I do know major damage has been done to this market, both from a technical perspective and a trust/credibility perspective and both of those combine to make me think we have not seen the lows for this pullback. So.....if you feel you just HAVE to play this market, I would do it from the short side, but only after a bounce.

That's about all I can say for strategy right now. I just don't think there is much(strategy that is) at this juncture. Let's talk about the more important issues happening right now, and we as traders all know what those are. The main question I ask myself right now is if what happened Thursday afternoon at 2:40 going to forever change the stock market and the face of investing in our country. I think it will - what type of change is the real question?

If you follow me, you probably know I have commented several times over the last year or so that trading has seemed to change. It has gotten a lot more difficult, at least in my humble opinion. What has historically worked well for ages hasn't worked as well in the past year (at least for me). Now, I am completely aware that this feeling could just be me trying to come up with excuses for my performance over the past year or so. I have never claimed to be a superstar trader - I have strengths and certainly many weaknesses like many other traders. My account was up about 90% in 2008, but I took a loss for 2009 and am down this year as well. Perhaps I am just trying to make myself feel better by saying "things have changed". But as I look at charts and the action in not only individual stocks but in the market overall (where for how long have we seen lots of heavy volume selling and lots of lower volume buying but have not seen the market put in a meaningful pullback of any kind until now), I do sense things are different.

This year, I have made approximately 90 trades. Ten of those have been on the short side, while the remaining eighty were on the long side. I have certainly passed on stocks that have made big moves and chosen other stocks that haven't moved, but I figured that being mostly on the correct side of the market, I should have a better performance than I do. Yet what I see is stocks that continue to breakout, then reverse hard, then move right back up after becoming quite ugly looking. I see stocks that pull back to support areas, slice right through those support areas, and then reverse right back up after taking out a ton of stops. Again, it's my fault that I am not adapting successfully to these trading patterns, but I keep asking myself, "what exactly is working out there? What should I be doing instead?"

As I check in on some of the blogs I have followed for the past three or four years, I am seeing changes too. I am seeing other traders become strictly day-traders. I am seeing traders become scalpers. I am not seeing the same mind-blowing performance claims that I saw two or three years ago, even in the heart of the bear market. I ask myself, "am I the only one struggling right now, or am I the only one being honest about it?" Again, I am seeing changes and I have been seeing them for a while now - that's all I am saying.

Most of these thoughts and issues eventually lead me to the issue of computer trading and HFT and things of that ilk. Sometimes I tell myself that it is nothing and I need to suck it up and stop trying to find excuses for my performance. Then other times, I just sit and wonder. I know the "game" was always rigged, but for most of that time it was rigged because the humans traders like myself were competing with always had better information, faster information. They were more informed and had the ability to trade much better and more successfully because of it. As a trader, I could accept that and could still win if I just followed their actions. Today, I don't think that holds true anymore. Today, I think simple everyday traders like myself are competing against computers and I have to admit that it's a game I don't know if I even have a chance of winning.

I don't know what happened on Thursday. The truth may eventually come out, or it may not. I don't trust anything that is put out there right now to be honest. I have heard many explanations that a main reason the intraday crash occured was that computer programs shut down and with no real liquidity in the market besides those HFT computer programs, there were simply no bids. No one was there to step in and buy. With estimates of 60% of the daily market volume tied to HFT, it makes sense that the market crashes if 60% of the daily volume can be taken away by a mouse click or algorithm.

I have also asked myself the following question several times - if 60% of all daily volume is made from computers trying to outrace other computers by microseconds for fractional gains much less than a penny, do charts really matter anymore? Traditionally, technical analysis is based on human emotions - fear and greed. Support and resistance levels, trendlines, etc - all can be tied back to human emotions. So what if it is now mostly non-humans making those decisions? Doesn't that changes things just a bit???

I don't know what is true and what isn't right now. I do know that I have not read one positive article about HFT. I have read a multitude of negative ones however. Actually, I am kind of surprised that there are as many negative articles about it out there. If what I read is mostly true and because of HFT our markets truly have turned into electronic casinos that normal men or women trying to grow their nest eggs have absolutely no chance of winning in, I figured you wouldn't hear much about it at all. It would be the ultimate "elephant in the room" that no one wants to talk about it because of fear of what might happen if people knew.

Why do I say this? Well, can you ever imagine the Fraternal Order of Police holding a nation-wide news conference and stating that we really don't need police officers anymore and we never really did? Or the National Education Association coming out and saying that we really don't need teachers - that schools are just a scam and no one kids should participate in them? Or (I'm really stretching on this one) that the U.S. Congress will come out and say that our country does not need them, that they are all scam artists, and that they should be fired? Now I am not trying to say we don't need teachers or police officers (believe me, I support both groups tremendously, although I do support the getting rid of Congress idea). I am using these just as examples. My point is that you would never hear these statements made because those teachers, police officers, or Congressmen (or any other profession - just pick your own) would never destroy their own careers. No one would.

Very few people are naturally going to sabatoge themselves and their career (especially when their careers provide them much wealth and prestige) just to protect others and to be honest. It just isn't going to happen. So how does this related to Wall Street and trading? Well, if the people who run the wide range of investment services out there would come out tomorrow and tell all of their clients that the market is completely rigged, completely controlled by computers, and that they have virtually no chance of being successful, what would happen? Obviously most of those people that used those services would stop using them and there would be a huge loss of revenue and jobs. The whole industry would likely disintegrate as people realize they have been sold nothing but snake oil for so long. Imagine Jim Cramer coming out on his T.V. show Monday and telling folks that the market has changed forever, it is just a computer-controlled casino now, and is no longer something that is worth risking money on. What happens to him? You think he's still a multi-millionaire? That's why I wonder if anything will happen or if any change will occur - I am wondering if you will hear any discussion of a "changed game" being put out there by anyone that sells a Wall Street service.

I include myself in this discussion. I am obviously not a big-time blogger - I just come on here and share my thoughts about the market and some ideas that hopefully help fellow traders out. But this website is based on the stock market and trading. If it is not worth trading anymore, it's not really worth running a website anymore. I don't want to stop doing this and don't plan to stop, but I do wonder sometimes about the whole process. I feel weird sharing these thoughts right now to be honest and am a little scared of the reaction. These are however thoughts that I felt I must get off my chest so that's what I am doing.

I have wondered for the past few days about trading in general as well. Is it worth it? In the past I never thought of trading as being that risky - I thought for the most part risk could be controlled through the use of discipline and stop loss orders. Thursday threw a big wrench in that idea. Bids and asks were so out of whack that you could have had a stop at one price and be filled several dollars below, if it was filled at all. I cannot (or maybe just do not want to) think about sitting at my computer and watching my nest egg go right down the drain because computers decided to pull some tricks. If you read this blog you know I was in cash Thursday so I was not affected this time, but who now knows when the next time will be?

I have a lot of questions running through my mind right now. If I don't trade or invest in the market because it truly is a loser's game now, then where do I invest? How do I go about gaining wealth? What other options are there? I unfortunately don't have the answers to those questions - maybe some of you readers do.

Although I am pretty sure many of you will be questioning my sanity after reading this long, rambling rant (if you haven't questioned it before this that is), I hope some of it makes sense. I think I am a pretty normal guy. I have a full-time job away from trading. I live nowhere near Wall Street. I don't sell a service. I just trade as a way to hopefully make money for my family to grow with. In the past, I have really enjoyed trading, but now I am really starting to dislike it. I would like to think there are a lot of people out there just like me and that are having the same questions I have right now. Please feel free to leave any comments - good or bad - about the thoughts above.

I really do hope last Thursday was just a one-time glitch that will never happen again. Perhaps some sort of change can be made to limit the damage these computer trading programs can do on Wall Street. I unfortunately am not very optimistic that that will occur. Going back to my opening comments, I think it is a game-changer. As it is, until things do settle down and get back to normal, I will not be trading. It could take a few weeks or a few months before I am comfortable putting my money on the line and feeling enough confidence in my ability to know where the market will go next. As many traders have said this week, right now there is absolutely no "edge". It is very smart to wait for one to come back, as long as that wait may take.

Going back to 2008, I don't think the regular American had too much trust in Wall Street to begin with, and after Thursday, I think the little that was left began to disintegrate as well. That's not good and needs to somehow change. Hopefully it can. Good luck to all of you out there. Be careful.

Friday, May 7, 2010

I'll be back this weekend with a longer post about a number of topics that are important right now, but from a trading perspective, for today, what's the point? Right now, things are quite bad out there, both with price action and the overall state of our financial investing system. Yesterday could be a game-changer in a number of ways and I know it has made me consider things I haven't thought about for a while. There was more selling overall today and the market is quite oversold. If I had to guess, I would say we bounce soon but as I said yesterday, any bounces are just shorting opportunities, and that's my game plan for now. That game plan won't come into play for a while however - not until we regain some semblance of normalcy and I can feel confident that I won't lose half my account in a ten minute period on a computer glitch. Enjoy the weekend - I think all traders need the break.

Thursday, May 6, 2010

"Good luck Thursday - the volatility right now is crazy and will likely continue. Be careful."

Well....WOW! I don't know what else to say about today. My idea of crazy was not what happened on Wall Street today. I was in cash and didn't plan on making any trades, so I really didn't watch the market too much this morning. I checked Yahoo Finance at work a few times before and at lunch as I normally do, and then didn't do anything else the rest of the afternoon. Around 3:00, as my workday started to die down, I clicked on Yahoo Finance and saw the headline "Dow Paring Losses After Plunging Almost 1,000 Points; Wall Street Hammered Amid European Debt Worries". All I could say was, "what?"

I can't comment too much on the intraday action today as I wasn't watching it closely. Anytime the Dow falls over 600 points in 10 minutes, you are obviously looking at something historical. I don't know why it happened and happened so fast - computer trading probably played a part and I'm sure you'll hear a lot of explanations. It was obviously crazy and I am sure a ton of traders got hammered. I am sure a ton of stops were run hard today. To be honest, I am fine with being in cash here. I do wish I would have just shorted the break of 1180 and ran with it, but I really thought it would be a false breakdown at first and wanted to wait for a bounce. Overthinking got me in trouble.

So where do we go from here? Well, if you had any doubts about things being "different" this time in terms of a correction, I would say you need to reconsider. A lot of damage was done to charts today and even if we don't move much lower than where we were today (which is a distinct possibility), time will be needed to make charts look better again. There is little doubt we are in correction mode, and given the fact that I don't think this debt issue is going to go away anytime soon (on the contrary, it will probably only get worse), I think there is a good chance that this "bull market" from March 2009 has seen its highs for the forseeable future.

If you want to try and be a hero here, that's your prerogative - you can try to catch a bottom soon, maybe even today. I just think with all the headline news still out there, you may see more drops like you saw today at 2:35, so it's not worth the risk. For me, as someone who can't watch the market each and every minute of the day(which after today seems to be an absolute necessity), trading right now just doesn't make much sense. Bottom line - the market is too tricky right now. Sometimes you need to know when to walk away and take a break. This might be one of those times. I will look to short any bounces we get because that looks to be the only real play out there, but my trading activity will likely be decreasing for a while if this type of crazy volatility continues.

I hope this summary reads OK - I really don't know what to say on a day like today. At least I won't have to do my scans tonight - no real need. I guess I'll wrap it up the same way I did last night - good luck Friday. The volatility is crazy and will likely continue. Be careful. Be very, VERY careful.

** Oh yeah, if any of you readers where the trader that got into MSPD at $3.00 today, let me know how you pulled that one off. Lucky dog.

Wednesday, May 5, 2010

It's my wife's birthday today so today's post will be short. After going through my scans quickly, I can tell you that it is a real mess out there, meaning that it is hard to know what is going to happen next. The market started the day lower as futures fell hard throughout the pre-market session. A bottom was quickly put in, however, as stocks bounced right up around 10:00, erasing all of the day's losses. The momentum didn't continue though, as the bears came back to play as the lunch hour started and pushed stocks right back down toward the morning lows. Those lows were not touched, but stocks didn't bounce back much in the afternoon and finished in the middle of their intraday range. A lot of choppy trade today - a lot.

I see a lot of charts that had breakdowns today - stocks that were up to this point holding up OK, like MPG and AXAS. I also see a lot of charts that reversed well off their lows and held those reversals like CGA and PAL, which on the surface would appear to be bullish for those stocks. There is so much variation in the stocks I see that it is hard to get a grasp on where we go from here. I was stopped out of my PMI position from yesterday at $4.83 and am back in cash. I am looking for further selling from here before thinking about getting long for a bounce. 1150 on the S&P seems like an area where a bounce might make sense. I won't look to get short until we get back up into the neckline of this recent head and shoulders pattern around 1180.

Good luck Thursday - the volatility right now is crazy and will likely continue. Be careful.

Tuesday, May 4, 2010

The roller coaster continues. A day after posting very impressive gains, the bears came out to play in full force today on Wall Street, as we saw about as nasty a day as you can get. Stocks started the day lower, fell further from there until lunchtime, and then moved basically sideways with very little bounce into the close. Important support on both the Nasdaq and S&P were sliced through with ease. Volume was much heavier. A bad day all around.

Technically, the support around 1180 and 2450 was broken today but the market did manage to stay above its 50 day moving average around 1168 and 2403 respectively. I discussed in the weekend video that I thought the first break of those first support levels could be a fakeout with so much support below and a history of dip buyers coming in for quite a while now. I stick by that feeling for now, as although I don't discount us falling further tomorrow, there is more strong support for the S&P at 1150 and I would suspect we bounce if the market gets that low. It's possible we fall off a cliff here and blast through all downside support, but I doubt it will happen like that. If we do bounce, I don't think it will be a permanent bounce - I am looking for a reflex one from which to possibly get short. I passed on taking any shorts today.

Believe it or not, I actually took one long on today - PMI at $4.99. I look at this chart and see a key level at $5, and it seemed to have gotten some support in that area today as it bounced off its 50 day moving average. Longer-term, this looks like it is retesting the neckline of a massive inverse head and shoulder pattern and I will take a shot it holds this area. I will be out however if it doesn't.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

Overall, this remains a difficult market to trade overnight in anyway because it is still being hijacked by the headlines. Friday looked awful. Monday looked tremendous. Today looked awful. I am sure a lot of traders got chopped up if they have held overnight the past week or so. Basically, you just have to guess what the news will be when you wake up the next day. That's easy, right??? Until things settle down, it makes it tough to trade aggressively - being cautious is the better play. I'll take a few small shots here and there as I see them, but overall I am planning on remaining mostly in cash the rest of this week. If we get a reflex bounce from here, I will look to play it short, as I think longer-term we may have a more serious pullback in store for us. You know how that line of thinking has gone the past year, however, so who knows? Good luck Wednesday - you'll probably need it.

Monday, May 3, 2010

What a fun market, huh? A day after falling over 2% across the board on heavy volume, the market bounced right back today, regaining much of Friday's losses and putting the overall direction of the market completely up in the air. The day started higher, but stocks moved mainly sideways into the lunch hour. They had a sharp quick bounce at that point, and then moved mostly sideways with a slight upwards bias for the rest of the session, finishing with large gains. Volume however does seem to be very light as of now.

Technically, things are just a mess right now. In the video last night I said I was hesitant to short a break of 1180 and today is a reason why. I didn't think the bulls would give up that easily, and today shows that they haven't. That of course doesn't mean we can't continue to pullback from here. I'll be completely honest and say I haven't the faintest idea what tomorrow will bring. All I know is that things are extremely volatile right now and that is typical of a VERY news-driven market. It makes it very difficult to trade unless you're daytrading.

On Friday, I did enter FAZ at $12.11 - mentioned this in last night's video. I was stopped out of this today at $11.79 for a 2.6% loss. I didn't make any other trades last week and after today I feel a little better about my decision to stay in cash. If I was trading a lot, I know I would have been chopped to bits. This is a market where only day-traders should be trading - there is just too much chop and volatility to hold anything overnight. After having so little volatility for so long ( the entire rally up from February through mid-April), we have now had four out of the last five trading days showing moves of over 1%. If they were all moves in the same direction, it would be great. Unfortunately, they weren't - just back and forth with us really going nowhere. I hope things settle a bit soon but as long as the news is dominating things, I don't know that it will.

Not much else to say - we just don't have a market that looks good to put swing trades on with durations of a few days to a few weeks. Too much uncertainty. One thing I will say - a bounce like today will put more shorts back into play and perhaps a break of 1180 can happen now without a whipsaw reversal - a possibility I mentioned last night (assuming we get that low again.) If you're trading a lot this week, have fun - there are setups on both sides that I am watching but will likely wait until we get out of this consolidation before doing anything else. I just don't trust the bears or the bulls very much right now. Take care.

Sunday, May 2, 2010

Hi, traders, here's the video for the upcoming week. This past week was obviously not a good one on Wall Street and was punctuated with a nasty selloff on Friday. There are some key technical numbers out there to watch right now and I go over those in the video. While I do tend to think we are setting up for a 10-12% pullback from here, I don't know if it will start this week. I will not be surprised for the bulls to put up a fight this week, and because of that, I think we'll see some choppy trading this week. Part two of the video shows some potential stocks to add to your watchlists.

To see the video in HD, please click "720p" and "Full Screen" on the video bar - HD will be available after processing.

Here are the results from last week's video. As always, these do not reflect actual recommendations or realistic entry or exit points. It does however show that nice looking setups were not working well last week and that tells you something about the overall market.

Overall Market Timing Score

March 20, 2014 -2March 19, 2014 +1(Max Score +6, Min Score -6)

The Market Timing Score has six factors that I record on a daily basis. These include breadth indicators, moving average indicators, accumulation and distribution indicators, and overbought and oversold indicators.

The max score of the Market Timing Score is +6, but this is very rare. Typically a score of +4 or +5 tells you that the market is very bullish. A score of +3 or +2 tells you that the market is bullish, but there are a few reasons for concern. A score of +1 or 0 tells you that cash is the best place to be. The scores work the exact same way on the negative side for bearish markets.

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Chart Swing Trader is a website intended for the education of online stock traders. The website is an information service only. The information provided herein is not to be construed as recommendations to buy or sell stocks of any kind. They are simply the opinions of the author. It is possible that the editor of this blog may own, buy, or sell stocks presented. All investors should consult a qualified professional before trading any stock. The author is not an investment advisor. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts made by the author are committed at the reader's own risk, financial or otherwise.